Fox joins Universal’s war on Redbox DVD rental kiosks

Fox has ordered distributors to stop providing Redbox with new DVD releases, …

20th Century Fox has followed in Universal's footsteps by yanking its DVDs out of Redbox, the bargain-basement-priced DVD rental kiosks. Ars was tipped off by a reader that the studio, which has never entered into an agreement directly with Redbox, has ordered its wholesalers not to sell its DVDs to Redbox until 30 days after release. The move reflects the movie industry's fear and loathing of this new DVD rental market, reducing people's visits to places like Blockbuster and reducing the studios' ability to try and sell DVDs to customers.

Redbox is jointly owned by Coinstar and a subsidiary of McDonald's and acts as a self-service DVD distributor that operates kiosks at over 10,000 retail locations in the US (including McDonald's, Walmarts, Walgreens, and grocery stores). The kiosks, which each house more than 600 DVDs, rent out movies for $1 per day and sell used movies for $7. The company's Web-based inventory system makes it possible for consumers to select their movies over the Internet and reserve them in advance at a specified Redbox kiosk. The company has more kiosks than Blockbuster has stores, and each kiosk rents out an average of 50 movies per day.

The company does not, however, have any sort of partnership with most of the major movie studios. Sony is the only one that has recently struck a distribution deal with Redbox—the company otherwise obtains its DVDs through wholesale movie suppliers, such as Ingram and VPD, that have contracts with the movie studios. Movie giant Universal was the first to pick a bone with this arrangement, threatening to sever contracts with distributors unless they stopped providing DVDs to Redbox until 45 days after release.

Redbox then sued Universal for engaging in anticompetitive behavior and abusing copyright law, as well as trying to use coercive tactics to get Redbox to shell out 40 percent of its total gross revenues in exchange for new releases. Universal responded by countersuing, and a decision on the case is expected to land very soon. Fox apparently liked Universal's tactics, and is following suit with its own orders to distributors.

According to an unnamed source from Fox speaking to the Wall Street Journal, Fox said that it's still open to making DVDs available on their release dates if Redbox agrees to "better economic terms, such as sharing rental revenue," but that Redbox had declined the offer. Another source speaking to Reuters said that the company is prepared for a lawsuit from Redbox in response to its decision to withhold DVDs.

Officially, Fox's parent company News Corp. acknowledged that the reason for the move is because it believes outlets like Redbox are essentially ruining its business. "Having our [movies] rented at $1 in the rental window is grossly undervaluing our products," News Corp COO Chase Carey said on a conference call yesterday. "We are actively determining how to deal with it."

121 Reader Comments

the company otherwise obtains its DVDs through wholesale movie suppliers, such as Ingram and VPD, that have contracts with the movie studios...

If this is how it works, and Universal/Fox stop the wholesalers from selling to Redbox, what's to stop Redbox from just getting the DVDs from a big retailer, like say Amazon? Surely, they'd be willing to sell to such a large customer at a tiny markup over wholesale, and surely Universal/Fox wouldn't have the gall to go war with big retail, no?

I think not. I would guess the actual rental cost should be somewhere around $0.05 per day. Now that's what I would call real value.

On a serious note, we all know that the movie studios are bleeding cash and that they are trying to steal and cheat their way back to profitability any way they can. It's easier to steal than it is to innovate and the movie studios are doing just that.

I love me some Redbox.... although I had begun to wonder why the number of new titles seemed so slim recently. Guess I know why. Either way this blows. And as for the "significantly undervaluing our product" B.S., let's cut the shit shall we? Cookie cutter action and romantic comedies are worth exactly $1.

Originally posted by fil:Wow. I feel out of it. I'd never even heard of redbox.

quote:

the company otherwise obtains its DVDs through wholesale movie suppliers, such as Ingram and VPD, that have contracts with the movie studios...

If this is how it works, and Universal/Fox stop the wholesalers from selling to Redbox, what's to stop Redbox from just getting the DVDs from a big retailer, like say Amazon? Surely, they'd be willing to sell to such a large customer at a tiny markup over wholesale, and surely Universal/Fox wouldn't have the gall to go war with big retail, no?

Do you have a right to rent the DVD you buy off Amazon? I am asking; I don't know. Maybe that's the missing link.

Originally posted by fil:Wow. I feel out of it. I'd never even heard of redbox.

quote:

the company otherwise obtains its DVDs through wholesale movie suppliers, such as Ingram and VPD, that have contracts with the movie studios...

If this is how it works, and Universal/Fox stop the wholesalers from selling to Redbox, what's to stop Redbox from just getting the DVDs from a big retailer, like say Amazon? Surely, they'd be willing to sell to such a large customer at a tiny markup over wholesale, and surely Universal/Fox wouldn't have the gall to go war with big retail, no?

Do you have a right to rent the DVD you buy off Amazon? I am asking; I don't know. Maybe that's the missing link.

Yes, apparently you do have the right to rent out any DVD you buy.

"As pointed out on Content Agenda, the Redbox/Universal lawsuit is reminiscent of the video rental disputes of the 1980s, which established the right of buyers to, according to the first-sale doctrine, rent or resell a purchased copy of a work without the rights holder’s permission. In this case, Redbox may argue that preventing the company from purchasing DVDs except under Universal’s revenue-sharing agreement is a misuse of Universal’s copyright, if copyright is being used to secure a monopoly on the product, and is interfering with their previous contracts with Ingram and VPD."

Originally posted by eJacqui:You might think that makes sense but I guess we don't really know what kinds of deals Amazon is or isn't willing to make. No doubt Amazon still can't offer the same prices as legit wholesalers.

Would Amazon buy its goods from wholesalers or directly from the studios? I would assume all the big purchasers like Amazon and Blockbuster would go direct, just like the article says Redbox does with Sony. So presumably they'd be buying at the same pre-wholesale pricing.

And this is why the studios are failing. They still, after all these years, can't even grasp the basic concept of movie rental and how it helps them, and adapt their model to it. Expecting them to figure out the Internet is like asking cavemen to figure out the automobile.

Originally posted by fil:Surely, they'd be willing to sell to such a large customer at a tiny markup over wholesale, and surely Universal/Fox wouldn't have the gall to go war with big retail, no?

You might think that makes sense but I guess we don't really know what kinds of deals Amazon is or isn't willing to make. No doubt Amazon still can't offer the same prices as legit wholesalers.

You're probably right about that, but I can't imagine that even paying retail on those DVDs would hurt Redbox's bottom line terribly. It's cheaper and more convenient to go through wholesalers, of course, but considering we're talking about a one-time cost, it'd just mean a few more rentals before they break even on a given disc.

Originally posted by eJacqui:You might think that makes sense but I guess we don't really know what kinds of deals Amazon is or isn't willing to make. No doubt Amazon still can't offer the same prices as legit wholesalers.

Would Amazon buy its goods from wholesalers or directly from the studios? I would assume all the big purchasers like Amazon and Blockbuster would go direct, just like the article says Redbox does with Sony. So presumably they'd be buying at the same pre-wholesale pricing.

I meant for Redbox to get its DVDs from Amazon instead of the current wholesalers, which is what fil was suggesting.

Originally posted by heartburnkid:And this is why the studios are failing. They still, after all these years, can't even grasp the basic concept of movie rental and how it helps them, and adapt their model to it. Expecting them to figure out the Internet is like asking cavemen to figure out the automobile.

I've never used it, but see the thing at a lot of the grocery stores I go to. I'll have to make it a point to start using it from time to time now that I know the studio's dislike it enough to think they are entitled to 40% of their revenue. Guess it's hard to convince people to pay the full retail price of a dvd for a time limited drm'd download when they can just rent it for a buck a day.

This blows my mind. Are they worried that people will buy less at retail? So is it really the studios to blame for Blockbuster charging nearly $5 a rental these days, making the consumer ponder "I could rent it for $5, or buy it for $15"?

I'd think if they cut out Redbox (or delay releases by 30/45 days) they're just delaying or reducing profit as people forget about the movie later (or acquire it some other way...) I'd assume there's less demand on an "older" new release, so Redbox wouldn't purchase as many copies, and the studio would be out that much more cash. Am I missing something?

Yet another case of media publishers wanting two bites at the cherry. They get whatever they want to charge for the original sale to redbox but somehow think they're still entitled to a share of the rental... crazy. They just can't die soon enough for my liking.

Originally posted by Bixmen:Supply and demand. If redbox can rent movies for a dollar and turn a profit, I'd say that $1 is priced at what the market can bare, the HALMARK of free enterprise.

Too true. If Redbox can buy the DVDs from a wholesaler with whom the studios already have a contract with and still turn a profit by renting at $1, then the movie studios HAVE to be able to turn a bigger profit if they were to do the same. Else redbox would be operating at a loss, and would not be here.

Originally posted by Frosty Grin:To be honest, I just don't see how cheap rentals are morally superior to copyright infringement. People simply don't want to buy the DVD, and cheap rentals are nothing but a convenient loophole.

So what are you saying? That Redbox shouldnt be able to rent them at a dollar and people that rent the movies are basically infringing but not because of a loophole? Really?

Originally posted by Lazlax08:So what are you saying? That Redbox shouldnt be able to rent them at a dollar and people that rent the movies are basically infringing but not because of a loophole? Really?

Apparently, the whole point of copyright is that the copyright holders have the exclusive right to control the works and profit from them. Redbox obviously deprives copyright holders of their income. According to the letter of the law, it may be legal. But it seems to contradict the spirit of the law. Just imagine a similar scheme with P2P "rentals" - you could rent a movie at a dollar and there would be little to no overhead. Heck, you could rent 10 movies at a dollar. Would it be fair to copyright holders?

Originally posted by Frosty Grin:To be honest, I just don't see how cheap rentals are morally superior to copyright infringement. People simply don't want to buy the DVD, and cheap rentals are nothing but a convenient loophole.

It's pretty simple, one is legal and the other isn't. I know when I go to a Redbox the studio is getting part of my dollar. If I downloaded the movie the studio would not be getting a part of any of my dollars.

Originally posted by Frosty Grin:Just imagine a similar scheme with P2P "rentals" - you could rent a movie at a dollar and there would be little to no overhead. Heck, you could rent 10 movies at a dollar. Would it be fair to copyright holders?

You seem to be missing the part where the studios are selling distributors the DVD in the first place. And your terrible P2P example is, well, terrible.

Originally posted by Lazlax08:So what are you saying? That Redbox shouldnt be able to rent them at a dollar and people that rent the movies are basically infringing but not because of a loophole? Really?

Apparently, the whole point of copyright is that the copyright holders have the exclusive right to control the works and profit from them. Redbox obviously deprives copyright holders of their income. According to the letter of the law, it may be legal. But it seems to contradict the spirit of the law. Just imagine a similar scheme with P2P "rentals" - you could rent a movie at a dollar and there would be little to no overhead. Heck, you could rent 10 movies at a dollar. Would it be fair to copyright holders?

Isn't it funny how the corporate whores want adherence to the letter of the law when it's in their favor, and then suddenly expect the opposite when the law isn't on their side?

This kind of thing goes along with the music labels demanding that startup companies hand over both a wad of cash AND control of the company to the labels, in exchange for permission to license their music at onerous rates.

Originally posted by Frosty Grin:To be honest, I just don't see how cheap rentals are morally superior to copyright infringement. People simply don't want to buy the DVD, and cheap rentals are nothing but a convenient loophole.

Except that no free copies are created. Obviously the renters can copy if they want, but Redbox/Netflix/Blockbuster can't really be held accountable for the actions of the individual. There is no law from renting out items you own. If you rent a DVD you own to a friend you cannot watch that DVD while they have it. That is why it is morally superior.

I'm not sure why studios didn't push to keep first run DVDs that go to Rental places in the $100+ range like they did with VHS. But I guess they saw the $$ when they let consumers buy first run movies and spawn a collecting movement. Now that the collecting has died down they want to go back to the old ways.

I used to buy plenty of DVDs. I still buy DVDs of movies or TV series I love. Normally I'd buy when they first came out on sale at a slight discount, say $17 compared to a $20 MSRP. This would even be for 2 disc special editions, I'd spend $30 on some 4 disc thing. Now for DVDs they price everything as $20 for a barebones movie, $25-$30+ for any kind of special edition. That doesn't fly with me as an extras whore. So I stopped buying. Plus the whole Hi-def thing makes people hesitate. Add on $10 to $20 bucks for every title, even a generic RomCom? No thanks.

I'm slowing getting converted to the idea of going 720p. But I don't have a TV for that yet, only a fancy laptop. So I'm probably out in the cold for a while. I try to catch most items I'm interested in at the theater, but if I miss that I'll probably give the movie a pass these days.

Originally posted by Frosty Grin:To be honest, I just don't see how cheap rentals are morally superior to copyright infringement. People simply don't want to buy the DVD, and cheap rentals are nothing but a convenient loophole.

I don't see how automobile rental is morally superior to automobile theft. People simply don't want to buy the car, and cheap rentals are nothing but a convenient loophole.

Originally posted by eJacqui:You might think that makes sense but I guess we don't really know what kinds of deals Amazon is or isn't willing to make. No doubt Amazon still can't offer the same prices as legit wholesalers.

Would Amazon buy its goods from wholesalers or directly from the studios? I would assume all the big purchasers like Amazon and Blockbuster would go direct, just like the article says Redbox does with Sony. So presumably they'd be buying at the same pre-wholesale pricing.

I meant for Redbox to get its DVDs from Amazon instead of the current wholesalers, which is what fil was suggesting.

Sure, but if Amazon buys at the same price as a wholesaler, then they can presumably afford to sell them at the same price as a wholesaler in wholesale quantities. I.e. Amazon could be a wholesaler if they felt like it, and then fil's question is pretty interesting. Would the studios be willing to start a fight with a major retailer like Amazon.

Probably Amazon isn't interested in the business, so the question will remain theoretical. But I'm pretty sure they could compete with wholesalers for wholesale customers if they wanted to.

Originally posted by Lazlax08:So what are you saying? That Redbox shouldnt be able to rent them at a dollar and people that rent the movies are basically infringing but not because of a loophole? Really?

Apparently, the whole point of copyright is that the copyright holders have the exclusive right to control the works and profit from them. Redbox obviously deprives copyright holders of their income. According to the letter of the law, it may be legal. But it seems to contradict the spirit of the law. Just imagine a similar scheme with P2P "rentals" - you could rent a movie at a dollar and there would be little to no overhead. Heck, you could rent 10 movies at a dollar. Would it be fair to copyright holders?

If the studios want more money from the movies that wholesalers sell then they should jack up the price to the wholesalers. Businesses downstream will have to adjust their prices. That's the only mechanism legally available to the studios to make redbox rent movies for more. I'm surprised they don't go after Netflix. I don't recall how many movies you can go through in a month but you can get the average cost down to under what you'd pay at blockbuster or something back in the 90s.

This is where we need congress to bitchslap the MPAA and individual studios for this illegal behavior.

Redbox buys the product it rents out. It then rents or sells the product. There's nothing on the law books that says you can't rent or sell product you paid for. If this were backed by law, libraries wouldn't exist. Blockbuster wouldn't exist.

These sort of bullshit tactics seriously need to be reigned in by lawmakers. If redbox is making fat profit, why doesn't fox or universal compete directly by offering their product for $1 rentals or $7 sales? That's how free markets operate. You must compete or go out of business. If you can't compete, you go out of business. You don't sue because you refuse to compete. You can certainly refuse to sell them product. But by holding back for 30 days, they are engaging in anti-competitive behavior by offering other retailers the chance to sell the product for 30 days before redbox gets the chance. This is definitely going to be ruled in favor of redbox. If it's not, capitalism is dead and it becomes a free-for-all.